Breakup and Default Risks in the Eurozone

42 Pages Posted: 27 Nov 2019 Last revised: 14 Jan 2020

See all articles by Giovanni Bonaccolto

Giovanni Bonaccolto

Kore University of Enna - School of Economics and Law

Nicola Borri

LUISS University - Department of Economics and Finance

Andrea Consiglio

University of Palermo - d/SEAS

Date Written: November 15, 2019

Abstract

Since the burst of the sovereign debt crisis, investors perceive the concrete possibility of a breakup of the Eurozone. We exploit CDS quotes for contracts denominated in different currencies and default clauses to estimate the network of breakup and default risk spillovers in the Eurozone isolating the relevant factors with shrinkage estimation techniques. We find that most Eurozone countries are exposed to economically large redenomination risk spillovers, with the effects stronger at shorter maturities. Redenomination shocks to one country, Italy, spillover on the redenomination and default risks of most other Eurozone countries.

Keywords: redenomination risk, CoVaR, elastic net, LASSO

JEL Classification: G10, C31, C45, C58

Suggested Citation

Bonaccolto, Giovanni and Borri, Nicola and Consiglio, Andrea, Breakup and Default Risks in the Eurozone (November 15, 2019). Available at SSRN: https://ssrn.com/abstract=3487453 or http://dx.doi.org/10.2139/ssrn.3487453

Giovanni Bonaccolto

Kore University of Enna - School of Economics and Law ( email )

Italy

Nicola Borri (Contact Author)

LUISS University - Department of Economics and Finance ( email )

viale Romania, 32
Rome, 00197
Italy

HOME PAGE: http://docenti.luiss.it/borri/

Andrea Consiglio

University of Palermo - d/SEAS ( email )

Viale delle Scienze, edificio 13
Palermo, 90124
Italy

HOME PAGE: http://portale.unipa.it/persone/docenti/c/andrea.consiglio

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